We have secure retirement, health care and ladders of opportunity speeches still ahead.

Five Steps to Home Ownership

In this latest speech, the President proposes:

Congress pass a bill to ease refinancing existing homes

Use FHA to make buying new homes easier

Fix immigration

Address uneven housing recovery

Create affordable opportunities for renters

Except #2, these proposals boil down more to political rhetoric than an actionable plan.

The Meat and Potatoes

Our housing system should operate where there’s a limited government role and private lending should be the backbone of the housing market

One of the key things to make sure it (a housing bubble) doesn’t happen again is to wind down these companies that are not really government, but not really private sector — they’re known as Freddie Mac and Fannie Mae – President Obama, Phoenix Arizona, 8/6/2013

There has been talk of eliminating Fannie and Freddie for years. This is the first time the President has proposed shutting them down as opposed to reforming them.

Few Americans understand that excessive loan approvals to unqualified home buyers was the core of the housing bubble that caused the Great Recession. In 2007, if you could breath you got approval for a home mortgage. Fannie Mae and Freddie Mac approved those loans. They are government sponsored enterprises.

Fannie and Freddie cost U.S. taxpayers $100s of billions and have barely started paying any of it back.

Fannie and Freddie approval practices overinflated home values. They helped invent the financial mechanisms that facilitated Wall Street excesses which, in turn, brought down the economy.

$7 trillion in mortgage value evaporated faster than boiling water in Death Valley summer. Millions of homeowners are still suffering that loss today.

Conclusions

At the same time President Obama proposes shutting down Fannie and Freddie he also proposes strengthening FHA to make homes “affordable for first-time homebuyers”.

Why exchange one monster for another?

Given the Fannie and Freddie experience, his thought is the economic equivalent of throwing fuel oil instead of high octane gasoline on a burning house. In both cases the house still burns to the ground and taxpayers get left stuck with the bill.

On a speech banner is proclaimed, “A HOME TO CALL YOUR OWN”.

A scary thought is that, with Congress’s help, the President will achieve that goal, approve more unqualified buyers and build the next housing bubble that torches the economy again.

I am against the government being involved in mortgage lending but I understand that Fannie and Freddie have been paying some $billions in dividends just lately. Is Obama perhaps looking to sell off the operations?

The President specifically used the words “wind down” when speaking of Fannie and Freddie. That means he thinks the government needs to stop being the primary funding source for home financing. The President is right. To bad its taken him nearly 5 years to figure that out.

The net result of the Great Recession is that The Fed acquired most of the unwanted toxic mortgage assets of the collapse from the bailouts.

Home mortgage values are coming back. Depending on how long The Fed holds onto its holdiongs, U.S. taxpayers could eventually make a pretty penny off them. 🙂

The idea that “owning a home” is part of the American dream has been political rhetoric for decades. Both parties push the meme and it’s helped create the housing bubble. Home ownership isn’t always a good investment.

It became official policy during the Clinton Administration to raise U.S. home ownership from 60% to 70%. Freddie and Fannie became the primary instruments used to fulfill that policy. The results were catastrophic.

Aside:
Larry Summers, the President’s favored candidate for Fed Chair next year, was up to his earlobes in the collapse of the economy. He supported and defended Freddie and Fannie and played a crucial in repealing Glass-Steagall.